Global growth is picking up and the growth in the South Asia region continues to remain strong. A recovery in industrial activity has coincided with a pickup in global trade, after two years of marked weakness.
... See More + Growth in South Asia remains strong, with regional output projected to grow by 6.8 percent in 2017 and an average of 7.2 percent in 2018–19. Economic activity in Nepal, which rebounded strongly in FY2017, reaching 7.5 percent (year-over-year [y/y]) following two challenging years, has again been impacted by severe flood affecting more than one-third of the country. High inflation in the last two years induced by disruptions moderated sharply by early 2017 and further slowed, reaching decade-low inflation by the end of FY2017, due to moderating inflation in India.
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Nepal's recent history of development is marred by a paradox. Many countries in the world have experienced rapid growth but modest poverty reduction, as income has increasingly concentrated in the hands of the wealthy.
... See More + Nepal, however, has the opposite problem-modest growth but brisk poverty reduction. The country has halved the poverty rate in just seven years and witnessed an equally significant decline in income inequality. Yet, Nepal remains one of the poorest and slowest-growing economies in Asia, with its per capita income rapidly falling behind its regional peers and unable to achieve its long-standing ambition to graduate from low-income status.
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Nepal's recent history of development is marred by a paradox. Many countries in the world have experienced rapid growth but modest poverty reduction, as income has increasingly concentrated in the hands of the wealthy.
... See More + Nepal, however, has the opposite problem-modest growth but brisk poverty reduction. The country has halved the poverty rate in just seven years and witnessed an equally significant decline in income inequality. Yet, Nepal remains one of the poorest and slowest-growing economies in Asia, with its per capita income rapidly falling behind its regional peers and unable to achieve its long-standing ambition to graduate from low-income status.
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Economic activity is rebounding strongly in Nepal following two challenging years. On the back of one of the best monsoons in recent years, rice production is estimated to have reached a record high at 5.2 million tons, up from 4.2 million tons a year ago, boosting agricultural output.
... See More + Postearthquake reconstruction activities are picking up after a slow start. All eligible houses about half a million have received the first of three tranches of the housing grant. The second tranche of the housing grant has started, and is expected to pick up by the end of FY2017. More than 100 megawatts (MW) of hydropower capacity, which was delayed by the earthquakes and trade disruptions, have come on stream. There has been a revival of transport and full normalization of wholesale and retail trade. Tourism is also recovering as arrivals reached precrisis levels during the September-December 2016 tourist season.
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After registering the weakest growth in 14 years during FY2016, economic activity is recovering in Nepal. Agriculture and construction are expected to improve on the account of a good monsoon as well as increased disbursements of housing reconstruction grants.
... See More + Coupled with in-creased government spending, this is expected to push FY2017 growth to 5 percent and to remain in line with potential thereafter. This edition of the Nepal Development Update examines the key economic developments in Nepal over the preceding months, placing them in a longer term and global perspective. In the Special Focus section, the authors take a closer look at what it would take for the electricity sector to power Nepal’s recovery. Over the past decade, power outages in Nepal have increased substantially. Availability of reliable and affordable electricity has become a major constraint for Nepal’s development as it hampers the ability to improve living standards, raise agricultural productivity and income, and help youth transition from farming to non-farm employment through creation of new industries at home. Given Nepal’s natural endowments, it is not difficult to envision an electricity sector that can support green growth, poverty reduction, and shared prosperity. Such an electricity sector would not only meet domestic demand reliably, affordably, and cleanly, but would earn revenue from export of surplus hydropower through enhanced regional electricity markets to neighboring countries by integrating the wider South Asia power market. Wholesale structural reforms of the electricity sector are needed to achieve this.
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Devastating earthquakes in April and May of 2015 took a huge human toll, destroyed homes, businesses, irreplaceable cultural heritage sites, and slowed economic growth.
... See More + The Government of Nepal (GoN), through a post disaster needs assessment (PDNA), estimated the value of losses at United States dollar (USD) 7.1 billion (physical damage of USD 5.2 billion and economic losses, spanning several years, of USD 1.9 billion). Nepal’s political parties intensified their efforts to adopt a new constitution, after eight years of deliberations, spurred on by the shift in political priorities following the April and May earthquakes. A normalization was envisaged whereby the faster budget implementation and sustained reconstruction activities can lead to a surge in imports, which will have tipped the current account balance into deficit over the forecast period, despite large remittances. Similarly, increased government spending on capital expenditure, as national reconstruction authority speeds up reconstruction activities, will lead to a larger budget deficit. The aim of this report is to report on key economic developments over the preceding months, placing them in a longer term and global perspective and to examine topics of particular policy significance.
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Commodity prices are expected to remain weak for the remainder of 2014 and, perhaps through much of 2015. Crude oil has seen one of the sharpest declines, down more than 20 percent to $83/barrel (bbl) on October 15 from this years high of $108/bbl in mid-June.
... See More + Agricultural prices have weakened as well, down 6 percent since June. Metal prices remained relatively stable, from the sharp declines seen in 2011. A slowdown in the Euro area and emerging economies, a strong US dollar, in-creased oil supplies, and good crop prospects for most agricultural commodities have contributed to the recent gyrations in markets. Income growth, especially in emerging economies, has played a key role in post-2000 commodity price increases. This section argues that this role has been uneven across commodity groups. Metal prices have been affected the most by growth, especially that in Chinas manufacturing sector, China currently consumes almost half of worlds metals, up from a mere 5 percent two decades ago . In-come growth has been the key driver in energy prices; during 2004- 13, oil consumption increased by 40 percent in non-OECD economies, while it declined 7 percent in OECD economies. Yet, the effect of income growth on agricultural commodities (including food) is mixed and limited. This paper includes the following headings: energy; metals; precious metals; fertilizers; agriculture; and annex.
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Second quarter gross domestic product (GDP) estimates and high-frequency indicators suggest continued weakness in the economy even before the latest round of economic sanctions introduced by the European Union (EU), the United States (U.S.), and other countries in late July.
... See More + The World Bank maintains its current 0.5 percent growth projection for 2014. Inflation slowed in July, but the wide-ranging ban on food imports the Russian authorities introduced in early August will likely increase short-term inflationary pressure and put the Central Banks 2014 inflation target further out of reach. Pressure on the Ruble resumed on the back of escalating geopolitical tension and advanced sanctions. The continued slowdown in Russia comes amid a sharp rebound in economic growth in the U.S. in the second quarter and a modest pickup in activity in China, while external financing conditions for developing countries remain favorable, reflecting continued accommodative policies in high-income economies. Global oil prices reversed their course in July as geopolitical risks emanating out of Iraq abated, but the ban of EU exports of oil drilling technology to Russia can drive up prices again.
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Second quarter gross domestic product (GDP) estimates and high-frequency indicators suggest continued weakness in the economy even before the latest round of economic sanctions introduced by the European Union (EU), the United States (U.S.), and other countries in late July.
... See More + The World Bank maintains its current 0.5 percent growth projection for 2014. Inflation slowed in July, but the wide-ranging ban on food imports the Russian authorities introduced in early August will likely increase short-term inflationary pressure and put the Central Banks 2014 inflation target further out of reach. Pressure on the Ruble resumed on the back of escalating geopolitical tension and advanced sanctions. The continued slowdown in Russia comes amid a sharp rebound in economic growth in the U.S. in the second quarter and a modest pickup in activity in China, while external financing conditions for developing countries remain favorable, reflecting continued accommodative policies in high-income economies. Global oil prices reversed their course in July as geopolitical risks emanating out of Iraq abated, but the ban of EU exports of oil drilling technology to Russia can drive up prices again.
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The strengthening of economic activity is robust in the United States, but lags behind in the Euro Area. Notwithstanding the Q1 weakness, economic activity in high-income countries (where large negative output gaps persist), is expected to pick-up over the short-to-medium term as drags from fiscal consolidation and household and firm balance sheet adjustments wane, and private sector activity strengthens supported by improving sentiment and still loose monetary policy.
... See More + In the United States Q2 this acceleration in economic activity is currently underway as there has been a pick-up in the pace of expansion of industrial production, consumer durables and capital good orders in Q2 relative to Q1. Further, compared to March levels, unemployment has declined to a post-crisis low and weekly unemployment claims are at an 8-year low. Forward looking business sentiment and consumer confidence indicators are also higher relative to where they were in Q2, thus pointing to continued robust real-side activity in Q3. Unlike the United States, the Euro Area, which recently exited a recession- continues to struggle for a broad-based recovery. Weighed down by weaknesses in France, Italy, the Netherlands, and Portugal, Euro Area industrial production recorded its first contraction in ten months in May (albeit mild), with consumer durables and capital good orders declining sharply. However, on a positive note, the unemployment rate continued its gradual downward slide. Further the European Commissions Economic Sentiment Indicator trended up to its highest level since mid-2011, and the Euro Area purchasing Managers Index climbed to a 3-month high in July, suggesting that a cyclical recovery in activity is already ongoing, even if uneven across member states. Going forward, the recent monetary measures announced by the European Central Bank should be supportive of real-side activity by keeping borrowing costs down and improving credit flows to the private sector. These developments are consistent with our expectations for an acceleration in economic activity in high-income countries in H2 2014.
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World Bank lowers projections for the global economic outlook. In the recently released Global Economic Prospects, the World Bank reports that the global economy got off to a bumpy start in 2014 buffeted by poor weather in the United States, financial market turbulence and the conflict in the Ukraine.
... See More + As a result, global growth projections for 2014 as a whole have been marked down from 3.2 percent in January to 2.8 percent now. Despite the early weak-ness, growth is expected to pick up speed as the year progresses and world GDP is projected to expand by 3.4 per-cent in 2015 and 3.5 percent in 2016, broadly in line with earlier forecasts. The bulk of the acceleration will come from high-income countries (notably the U.S. and the Euro Area) as reduced drag on growth from fiscal consolidation, improving labor market conditions and a steady release of pent-up demand in these countries are projected to over-come first quarter softness (which was largely influenced by transitional factors). High-income GDP is projected to grow at 1.9 percent in 2014, from 1.3 percent in 2013, and to 2.4 and 2.5 percent in 2015 and 2016.
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The key commodity price indices were broadly stable during 2014. Energy prices changed little, only 0.4 higher than 2013; agricultural prices increased 1.8 percent on weather-related concerns and metal prices declined 3.2 percent on Chinese demand weakness.
... See More + Agricultural prices are projected to ease in 2014 under the assumption that current crop conditions will persist for the next crop year. A weather-induced increase in maize and wheat prices in late February and March 2014 was partly offset by declines in rice prices. The report includes detailed market analysis for most primary commodities, including energy, metals, agriculture, precious metals, and fertilizers. It also includes historical and recent price data as well as price forecasts going up to 2025.
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With the exception of energy, all the key commodity price indices declined significantly in 2013. Fertilizer prices led the decline, down 17.4 percent from 2012, followed by precious metals (down almost 17 percent), agriculture (-7.2 percent), and metals (-5.5 percent).
... See More + Crude oil prices (World Bank average), which have been remarkably stable during the past three years, averaged $104/barrel (bbl) during 2013, marginally lower than the $105/bbl average of 2012. Most non-energy commodity prices, notably grains, followed a downward path during 2013. Other risks for agricultural markets are mostly on the downside as well. For example, the risk of trade policies impacting agricultural prices is low as evidenced by the absence of any export restrictions during 2011-13, despite several spikes in prices (notably maize and wheat). Finally, production of biofuels experienced a third year of little (or no) growth, as policy makers increasingly realize that the environmental and energy independence benefits from biofuels may not outweigh the costs.
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This report describes the forces acting on the global economy and its implications on developing countries using evidence based analysis. The report includes forecasts for individual developing regions and countries, as well as a research focused chapter examining capital flows and risks to developing countries.
... See More + The report describes a global economy that is at a turning point. For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries - suggesting that they may now join developing countries as a second engine of growth in the global economy. The stronger growth in high-income countries reflects progress in both private and public-sector healing in the wake of the financial crisis. The global economic prospects describes a baseline scenario where this gradual process is assumed to continue, resulting in a modest reduction in capital flows to developing countries from 4.6 percent of their gross domestic product (GDP) in 2013 to around 4.0 percent in 2016. Whatever drag this implies for developing country growth is more than offset by the additional export demand due to stronger high-income country growth. While the smooth adjustment process is the most likely scenario, the novelty of the unwinding process has only begun and the rapid spike in long-term interest rates during the summer of 2013 suggests that a much more abrupt rise in long-term interest rates is also a possibility, if less likely. In such a disorderly adjustment scenario, capital flows to developing countries can decline temporarily by 50 percent or more for a period of several months - potentially pushing one or more countries into crisis. Evidence suggests that countries with large current account deficits or those that have had a rapid accumulation of credit in recent years can be most vulnerable to a precipitous tightening of international financial conditions.
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The political and social upheavals that followed the Arab Spring of 2011 continue to dominate economic activity and near term prospects in the Middle East and North Africa (MENA).
... See More + Prior to the Arab Spring, aggregate investment and foreign direct investment (FDI) flows to MENA followed the rest of the world. This report shows that political turbulence since the early 2000s has affected not only the level of FDI in MENA, but also its composition. It has skewed towards activities that create the least jobs or that create jobs in non-resource tradable manufacturing and services needed for export upgrading and diversification. By hurting these efficiency-seeking investments, shocks to political stability exacerbate the clustering of FDI in the extractive industries and non-resource tradable sectors. The findings of the report outline several policy challenges and priorities. The report argues that MENA countries may find themselves in a resource trap unless they strengthen institutions and improve the investment climate, especially political and macroeconomic stability. Protecting the rule of law and property rights, and committing to stable and transparent policies will encourage investment, especially foreign investment in the labor-intensive non-oil manufacturing and service sectors of MENA, and thus job creation, growth, and structural transformation. Structural reforms address privileged businesses, macroeconomic imbalances, expensive subsidies, inadequate provision of infrastructure services, problems with education, and poorly functioning labor markets. These structural issues constrain growth with grim consequences for the unemployment problem, especially among youth and women. Achieving a consensus on political reforms is a necessary pre-requisite for sustainable, high growth in developing MENA.
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Crude oil prices averaged $107/bbl during 2013Q3, up 2 percent since 2013Q2 and 4 percent higher than a year ago. Spillover fears of Syria's conflict to the Gulf and large output reductions by Iraq and Libya weighed in.
... See More + Agricultural prices are projected to decline 7.8 percent in 2013 under the assumption that the improved crop conditions al-ready in place will continue. Specifically, prices of food, beverages, and raw materials are expected to drop by 7.6, 10.9, and 6.9 percent, respectively. Metal prices will fall about 8 percent due to abundant supplies and weakening demand. Fertilizer prices are expected to decline more than 17 percent, as new plants in the US are coming on stream, in turn a response to low natural gas prices. Precious metals prices are expected to drop almost 20 percent as institutional investors increasingly consider them less attractive 'safe haven' alternatives, in addition to weakening physical demand. There are a number of risks to the baseline fore-casts. Over the long term, oil demand could be dampened further if substitution between crude oil and natural gas intensifies. Nominal oil prices are expected to average $105/bbl during 2013 (identical to the 2012 average) and increase to $106/bbl in 2014. The marginal in-crease in 2014 reflects the higher price level to-wards the end of 2013, though prices are expected to be moderating from current levels. Over the longer term, prices in real terms are expected to fall, due to several reasons, including growing sup-plies of conventional and (especially) unconventional oil, efficiency gains, and substitution away from oil. Agricultural commodity prices are projected to de-cline 7.8 percent in 2013, with most of the decline attributable to grains and beverages (almost 11 per-cent each), followed by edible oils (-8.7 percent) and raw materials (-6.9 percent). The largest de-clines among important food commodities are expected to be in maize and rice (from the grain group) and coconut oil and palm oil (from edible oil group).
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Some of the headings included in this issue of the Development Economics Prospects Group (DECPG) daily economics and financial market commentary newsletter are as follows: financial markets; high-income economies; developing economies in East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, and Sub-Saharan Africa.
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Some of the headings included in this issue of the Development Economics Prospects Group (DECPG) daily economics and financial market commentary newsletter are as follows: financial markets; high-income economies; developing economies in East Asia and Pacific, Europe and Central Asia, South Asia, and Sub-Saharan Africa.
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